For the transition period from __________________ to _________________

Commission file number: 001-36724

The Joint Corp.

(Exact name of registrant as specified in its charter)

Delaware

90-0544160

(State or other jurisdiction of incorporation or

organization)

(IRS Employer Identification No.)

16767 N. Perimeter Drive, Suite 240, Scottsdale

Arizona

85260

(Address of principal executive offices)

(Zip Code)

(480) 245-5960

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed
since last report)

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant
is a shell Company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of November 2, 2018, the registrant had 13,734,193 shares of
Common Stock ($0.001 par value) outstanding.

During the nine months ended September 30, 2018 and 2017, cash paid for income taxes was $29,522 and $22,838, respectively. During the nine months ended September 30, 2018 and 2017, cash paid for interest was $75,000 and $81,993, respectively.

Supplemental disclosure of non-cash activity:

As of September 30, 2018, we had property and equipment purchases of $68,788 and $2,214 included in accounts payable and accrued expenses, respectively. As of December 31, 2017, we had property and equipment purchases of $50,474 included in accounts payable.

As of September 30, 2018, we had stock option exercise proceeds of $6,720 included in accounts receivable.

In connection with our acquisitions of franchises during the nine months ended September 30, 2018, we acquired $17,964 of property and equipment, intangible assets of $129,000, favorable leases of $15,302, in exchange for $100,000 in cash to the sellers. Additionally, at the time of these transactions, we carried deferred revenue of $12,998, representing franchise fees collected upon the execution of the franchise agreement. In accordance with ASC-952-605, we netted this amount against the aggregate purchase price of the acquisitions (Note 2) and a bargain purchase gain of $75,264 was recognized.

In connection with our reacquisition and termination of regional developer rights during the nine months ended September 30, 2018, we had deferred revenue of $26,934 representing license fees collected upon the execution of the regional developer agreements. In accordance with ASC-952-605, we netted these amounts against the aggregate purchase price of the acquisitions. (Note 8)

The accompanying notes are an integral part of these condensed consolidated
financial statements.

These unaudited financial statements represent
the condensed consolidated financial statements of The Joint Corp. (“The Joint”) and its wholly owned subsidiary, The
Joint Corporate Unit No. 1, LLC (collectively, the “Company”). These unaudited condensed consolidated financial statements
should be read in conjunction with The Joint Corp. and Subsidiary consolidated financial statements and the notes thereto as set
forth in The Joint Corp.’s Form 10-K, which included all disclosures required by generally accepted accounting principles
(“GAAP”). In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments
necessary to present fairly the Company’s financial position on a consolidated basis and the consolidated results of operations
and cash flows for the interim periods presented. The results of operations for the periods ended September 30, 2018 and 2017 are
not necessarily indicative of expected operating results for the full year. The information presented throughout the document as
of and for the periods ended September 30, 2018 and 2017 is unaudited.

The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue,
costs, expenses and other (expenses) income that are reported in the condensed consolidated financial statements and accompanying
disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that
the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances.
As a result, actual results may be different from these estimates. For a discussion of significant estimates and judgments made
in recognizing revenue under the new revenue standard, see Note 3, Revenue Disclosures. Certain balances were reclassified
from general and administrative expenses to other expense, net, as well as certain balances from other revenues to revenues and
management fees from Company clinics for the period ended September 30, 2017 to conform to the current year presentation and align
with the segment footnote presentation.

Principles of Consolidation

The accompanying condensed consolidated financial
statements include the accounts of The Joint Corp. and its wholly owned subsidiary, The Joint Corporate Unit No. 1, LLC, which
was dormant for all periods presented.

All significant intercompany accounts and transactions
between The Joint Corp. and its subsidiary have been eliminated in consolidation.

Comprehensive Loss

Net loss and comprehensive loss are the same
for the three and nine months ended September 30, 2018 and 2017.

Nature of Operations

The Joint, a Delaware corporation, was formed
on March 10, 2010 for the principal purpose of franchising, developing and managing chiropractic clinics, selling regional developer
rights and supporting the operations of franchised chiropractic clinics at locations throughout the United States of America. The
franchising of chiropractic clinics is regulated by the Federal Trade Commission and various state authorities.

4

The following table summarizes the number of
clinics in operation under franchise agreements and as company-owned or managed clinics for the three and nine months ended September
30, 2018 and 2017:

Three Months Ended

Nine Months Ended

September 30,

September 30,

Franchised clinics:

2018

2017

2018

2017

Clinics open at beginning of period

365

336

352

309

Opened or purchased during the period

10

6

25

35

Acquired during the period

-

-

(1

)

-

Closed during the period

(1

)

-

(2

)

(2

)

Clinics in operation at the end of the period

374

342

374

342

Three Months Ended

Nine Months Ended

September 30,

September 30,

Company-owned or managed clinics:

2018

2017

2018

2017

Clinics open at beginning of period

48

47

47

61

Opened during the period

-

-

-

-

Acquired during the period

-

1

-

Closed or sold during the period

-

-

-

(14

)

Clinics in operation at the end of the period

48

47

48

47

Total clinics in operation at the end of the period

422

389

422

389

Clinic licenses sold but not yet developed

126

105

126

105

Executed letters of intent for future clinic licenses

12

5

12

5

Variable Interest Entities

An entity deemed to hold the controlling interest
in a voting interest entity or deemed to be the primary beneficiary of a variable interest entity (“VIE”)
is required to consolidate the VIE in its financial statements. An entity is deemed to be the primary beneficiary of a VIE if it
has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's
economic performance and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of
benefits from the VIE. Investments where the Company does not hold the controlling interest and is not the primary beneficiary
are accounted for under the equity method.

5

Certain states in which the Company manages
clinics regulate the practice of chiropractic care and require that chiropractic services be provided by legal entities organized
under state laws as professional corporations or PCs. Such PCs are VIEs. In these states, the Company has entered into management
services agreements with such PCs under which the Company provides, on an exclusive basis, all non-clinical services of the chiropractic
practice. The Company has analyzed its relationship with the PCs and has determined that the Company does not have the power
to direct the activities of the PCs. As such, the activities of the PCs are not included in the Company’s condensed consolidated
financial statements.

Cash and Cash Equivalents

The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions
with, and credit quality of, the financial institutions with which it invests. As of the balance sheet date and periodically throughout
the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company
has invested substantially all its cash in short-term bank deposits. The Company had no cash equivalents as of September 30, 2018
and December 31, 2017.

Restricted Cash

Restricted cash relates to cash that franchisees
and company-owned or managed clinics contribute to the Company’s National Marketing Fund and cash that franchisees provide
to various voluntary regional Co-Op Marketing Funds. Cash contributed by franchisees to the National Marketing Fund is to be used
in accordance with the Company’s Franchise Disclosure Document with a focus on regional and national marketing and advertising.

Accounts Receivable

Accounts receivable represent amounts due from
franchisees for initial franchise fees and royalty fees. The Company considers a reserve for doubtful accounts based on the creditworthiness
of the entity. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level
considered adequate to cover future losses. The allowance is management’s best estimate of uncollectible amounts and is determined
based on specific identification and historical performance that the Company tracks on an ongoing basis. Actual losses ultimately
could differ materially in the near term from the amounts estimated in determining the allowance. As of September 30, 2018, and
December 31, 2017, the Company had an allowance for doubtful accounts of $0.

Deferred Franchise Costs

Deferred franchise costs represent commissions
that are direct and incremental to the Company and are paid in conjunction with the sale of a franchise. These costs are recognized
as an expense when the respective revenue is recognized, which is generally over the term of the related franchise agreement.

Property and Equipment

Property and equipment are stated at cost or
for property acquired as part of franchise acquisitions at fair value at the date of closing. Depreciation is computed using the
straight-line method over estimated useful lives of three to seven years. Leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the assets.

Maintenance and repairs are charged to expense
as incurred; major renewals and improvements are capitalized. When items of property or equipment are sold or retired, the related
cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.

6

Software Developed

The Company capitalizes certain software development
costs. These capitalized costs are primarily related to proprietary software used by clinics for operations and by the Company
for the management of operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application
has reached the development stage, internal and external costs, if direct, are capitalized as assets in progress until the software
is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The
Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in
additional functionality. Software developed is recorded as part of property and equipment. Maintenance and training costs are
expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, generally five
years.

Intangible Assets

Intangible assets consist primarily of re-acquired
franchise and regional developer rights and customer relationships. The Company amortizes the fair value of re-acquired
franchise rights over the remaining contractual terms of the re-acquired franchise rights at the time of the acquisition, which
range from four to eight years. In the case of regional developer rights, the Company amortizes the acquired regional developer
rights over seven years. The fair value of customer relationships is amortized over their estimated useful life of two years.

Goodwill

Goodwill consists of the excess of the purchase
price over the fair value of tangible and identifiable intangible assets acquired in the acquisitions of franchises. Goodwill
and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. As required,
the Company performs an annual impairment test of goodwill as of the first day of the fourth quarter or more frequently if events
or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. No
impairments of goodwill were recorded for the three and nine months ended September 30, 2018 and 2017.

Long-Lived Assets

The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The
Company looks primarily to estimated undiscounted future cash flows in its assessment of whether or not long-lived assets have
been impaired. No impairments of long-lived assets were recorded for the three and nine months ended September 30, 2018 and 2017.

Advertising Fund

The Company has established an advertising
fund for national/regional marketing and advertising of services offered by its clinics. The monthly marketing fee is 2% of clinic
sales. The Company segregates the marketing funds collected which are included in restricted cash on its condensed consolidated
balance sheets. As amounts are expended from the fund, the Company recognizes a related expense.

Co-Op Marketing Funds

Some franchises have established regional Co-Ops
for advertising within their local and regional markets. The Company maintains a custodial relationship under which the marketing
funds collected are segregated and used for the purposes specified by the Co-Ops’ officers. The marketing funds are included
in restricted cash on the Company’s condensed consolidated balance sheets.

Accounting for Costs Associated with Exit or Disposal Activities

The Company recognizes a liability for the
cost associated with an exit or disposal activity that is measured initially at its fair value in the period in which the liability
is incurred.

7

Costs to terminate an operating lease or other
contracts are (a) costs to terminate the contract before the end of its term or (b) costs that will continue to be incurred
under the contract for its remaining term without economic benefit to the entity. A liability for costs that will continue to be
incurred under a contract for its remaining term without economic benefit to the entity shall be recognized at the cease-use date.
In periods subsequent to initial measurement, changes to the liability are measured using the credit adjusted risk-free rate that
was used to measure the liability initially. The cumulative effect of a change resulting from a revision to either the timing or
the amount of estimated cash flows shall be recognized as an adjustment to the liability in the period of the change.

Deferred Rent

The Company leases office space for its corporate
offices and company-owned or managed clinics under operating leases, which may include rent holidays and rent escalation clauses.
It recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the term of the lease. The
Company records tenant improvement allowances as deferred rent and amortizes the allowance over the term of the lease, as a reduction
to rent expense.

Revenue Recognition

The Company generates revenue primarily through
its company-owned and managed clinics, royalties, franchise fees, advertising fund, and through IT related income and computer
software fees.

Revenues and Management Fees from Company
Clinics. The Company earns revenues from clinics that it owns and operates or manages throughout the United States.
In those states where the Company owns and operates the clinic, revenues are recognized when services are performed. The Company
offers a variety of membership and wellness packages which feature discounted pricing as compared with its single-visit pricing.
Amounts collected in advance for membership and wellness packages are recorded as deferred revenue and recognized when the service
is performed. In other states where state law requires the chiropractic practice to be owned by a licensed chiropractor,
the Company enters into a management agreement with the doctor’s PC. Under the management agreement, the Company provides
administrative and business management services to the doctor’s PC in return for a monthly management fee. Due to certain
implicit variable consideration in these management agreement contracts, and based on past practices between the parties, the Company
determined that it cannot meet the probable threshold if it includes all of the variable consideration in the transaction price.
Therefore, the Company recognizes revenue under these contracts only when it has a high degree of confidence that revenue will
not be reversed in a subsequent reporting period.

Royalties and Advertising Fund Revenue.
The Company collects royalties, as stipulated in the franchise agreement, equal to 7% of gross sales, and a marketing and advertising
fee currently equal to 2% of gross sales. Royalties, including franchisee contributions to advertising funds, are calculated as
a percentage of clinic sales over the term of the franchise agreement. The franchise agreement royalties, inclusive of advertising
fund contributions, represent sales-based royalties that are related entirely to the Company’s performance obligation under
the franchise agreement and are recognized as franchisee clinic level sales occur. Royalties are collected bi-monthly two working
days after each sales period has ended.

Franchise Fees. The Company requires
the entire non-refundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial
term of ten years. Initial franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement. The
Company’s services under the franchise agreement include: training of franchisees and staff, site selection, construction/vendor
management and ongoing operations support. The Company provides no financing to franchisees and offers no guarantees on their behalf. The
services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single
performance obligation.

Regional Developer Fees. During 2011,
the Company established a regional developer program to engage independent contractors to assist in developing specified geographical
regions. Under the historical program, regional developers paid a license fee for each franchise they received the right to develop
within the region. In 2017, the program was revised to grant exclusive geographical territory and establish a minimum development
obligation within that defined territory. Regional developers receive fees which are collected from franchisees upon the sale of
franchises within their region and a royalty of 3% of sales generated by franchised clinics in their region. Regional developer
fees paid to the Company are nonrefundable and are recognized as revenue ratably on a straight-line basis over the term of the
regional developer agreement, which is considered to be upon the execution of the agreement. The Company’s services under
regional developer agreements include site selection, grand opening support for the clinics, sales support for identification of
qualified franchisees, general operational support and marketing support to advertise for ownership opportunities. The services
provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance
obligation.

8

Software Fees. The Company
collects a monthly fee for use of its proprietary chiropractic software, computer support, and internet services support. These
fees are recognized ratably on a straight-line basis over the term of the respective franchise agreement.

Advertising Costs

Advertising costs are expensed as incurred.
Advertising expenses were $377,679 and $1,259,373 for the three and nine months ended September 30, 2018, respectively. Advertising
expenses were $314,695 and $961,106 for the three and nine months ended September 30, 2017, respectively.

Income Taxes

The Company uses an estimated annual effective
tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income (loss),
permanent tax differences and statutory tax rates. Deferred income taxes are recognized for differences between the basis of assets
and liabilities for financial statement and income tax purposes. The differences relate principally to depreciation of property
and equipment, amortization of goodwill, accounting for leases, and treatment of revenue for franchise fees and regional developer
fees collected. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either
be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating
losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.

The Company accounts for uncertainty in income
taxes by recognizing the tax benefit or expense from an uncertain tax position only if it is more likely than not that the tax
position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company
measures the tax benefits and expenses recognized in the condensed consolidated financial statements from such a position based
on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has not identified
any material uncertain tax positions as of September 30, 2018 and December 31, 2017. Interest and penalties associated with tax
positions are recorded in the period assessed as general and administrative expenses.

The Company's tax returns for tax years subject
to examination by tax authorities included 2014 through the current period for state and 2015 through the current period for federal
reporting purposes.

The Tax Cuts and Jobs Act of 2017 (the “2017
Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act significantly revises the U.S. corporate income tax
by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory
one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are
subject to U.S. tax. The Company has completed its determination of the accounting implications of the 2017 Tax Act on its accruals.
During the quarter, an income tax benefit of approximately $85,000 was recorded due to the change in the valuation allowance against
the net deferred tax asset.

Loss per Common Share

Basic loss per common share is computed by
dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per common share
is computed by giving effect to all potentially dilutive common shares including preferred stock, restricted stock, stock options
and warrants.

9

Three Months Ended

Nine Months Ended

September 30,

September 30,

2018

2017

2018

2017

(as adjusted)

(as adjusted)

Net loss

$

(151,803

)

$

(431,705

)

$

(581,486

)

$

(3,219,232

)

Weighted average common shares outstanding - basic

13,727,712

13,262,032

13,646,599

13,144,764

Effect of dilutive securities:

Unvested restricted stock, stock options and warrants

-

-

-

-

Weighted average common shares outstanding - diluted

13,727,712

13,262,032

13,646,599

13,144,764

Basic and diluted loss per share

$

(0.01

)

$

(0.03

)

$

(0.04

)

$

(0.24

)

Anti-Dilutive shares:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2018

2017

2018

2017

Unvested restricted stock

51,134

63,700

51,134

63,700

Stock options

960,213

1,011,686

960,213

1,011,686

Warrants

90,000

90,000

90,000

90,000

Stock-Based Compensation

The Company accounts for share-based payments
by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines
the estimated grant-date fair value of restricted shares using quoted market prices and the grant-date fair value of stock options
using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made
regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate,
volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to
the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method.

Use of Estimates

The preparation of the condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported
in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Items
subject to significant estimates and assumptions include the allowance for doubtful accounts, share-based compensation arrangements,
fair value of stock options, useful lives and realizability of long-lived assets, classification of deferred revenue and deferred
franchise costs, lease exit liabilities, realizability of deferred tax assets, impairment of goodwill and intangible assets and
purchase price allocations.

Recent Accounting Pronouncements

Accounting Standards Adopted Effective January 1, 2018

On January 1, 2018, the Company adopted the
guidance of Accounting Standards Codification 606 - Revenue from Contracts with Customers (“ASC 606”). The Company
adopted this change in accounting principles using the full retrospective method to all contracts at the date of initial application.
Accordingly, previously reported financial information has been restated to reflect the application of ASC 606 to all comparative
periods presented. The Company utilized all of the practical expedients for adoption allowed under the full retrospective method.
The Company believes utilization of the practical expedients did not have a significant impact on the consolidated financial statements
for the periods presented herein.

The revenue and deferred cost adjustments are
due to the change in method of recognizing franchise and regional developer fees. See Note 3, Revenue Disclosures, for a
description of these changes. The change in other current liabilities relates to the Company’s classification of funds received
related to letters of intent for future clinic licenses.

Adoption of ASC 606 impacted the Company’s
previously reported condensed consolidated statement of operations for the three and nine months ended September 30, 2017, as follows
(in thousands, except per share data):

THE JOINT CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended
September 30, 2017

Three Months Ended
Adjustments Due
to ASC 606
Adoption

Three Months Ended
September 30, 2017

(as reported)

(as adjusted)

Revenues:

Franchise fees

$

230

$

152

$

382

Regional developer fees

259

(160

)

99

Total revenues

6,546

(8

)

6,538

Cost of revenues:

Franchise cost of revenues

716

20

736

Total cost of revenues

819

20

839

Loss from operations

(378

)

(28

)

(406

)

Loss before income tax expense

(368

)

(28

)

(396

)

Net loss and comprehensive loss

$

(404

)

$

(28

)

$

(432

)

Loss per share:

Basic and diluted loss per share

$

(0.03

)

$

(0.00

)

$

(0.03

)

11

Nine Months Ended
September 30, 2017

Nine Months Ended
Adjustments Due
to ASC 606
adoption

Nine Months Ended
September 30, 2017

(as reported)

(as adjusted)

Revenues:

Franchise fees

$

1,037

$

4

$

1,041

Regional developer fees

456

(194

)

262

Total revenues

18,235

(189

)

18,045

Cost of revenues:

Franchise cost of revenues

2,104

(32

)

2,071

Total cost of revenues

2,332

(32

)

2,299

Loss from operations

(2,949

)

(157

)

(3,106

)

Loss before income tax expense

(2,983

)

(157

)

(3,140

)

Net loss and comprehensive loss

$

(3,062

)

$

(157

)

$

(3,219

)

Loss per share:

Basic and diluted loss per share

$

(0.23

)

$

(0.01

)

$

(0.24

)

The revenue and deferred cost adjustments are
due to the change in method of recognizing franchise and regional developer fees. See Note 3, Revenue Disclosures, for a
description of these changes.

In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), to provide guidance
on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The Company retrospectively
adopted the standard on January 1, 2018 and reclassified restricted cash to be included with cash and cash equivalents when reconciling
the beginning of period and end of period total amounts on the statement of cash flows. Accordingly, the Company reclassified $176,924
of restricted cash into cash, cash equivalents, and restricted cash as of September 30, 2017, which resulted in an increase in
net cash used in operating activities in the condensed consolidated statement of cash flows for the nine months ended September
30, 2017. The adoption of the guidance also requires the Company to make disclosures about the nature of restricted cash balances.
See previous discussion in Note 1. ‘Restricted Cash’ for these disclosures.

In December 2017, the Securities and Exchange
Commission staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB
118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year form
the enactment date. SAB 118 was codified by the FASB as part of ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 118. The Company has completed its determination of the accounting implications of the 2017 Tax Act on
its accruals. During the quarter, an income tax benefit of approximately $85,000 was recorded due to the change in the valuation
allowance against the net deferred tax asset.

Additional new accounting guidance became effective
for the Company effective January 1, 2018 that the Company reviewed and concluded was either not applicable to the Company's operations
or had no material effect on the Company's consolidated financial statements.

Newly Issued Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842). The new guidance will require lessees to recognize a right-of-use asset and a lease liability for virtually
all leases, other than leases with a term of 12 months or less, and to provide additional disclosures about leasing arrangements.
Accounting by lessors is largely unchanged from existing accounting guidance. The Company will be required to adopt the new guidance
on a modified retrospective basis beginning with its first fiscal quarter of 2019. Early adoption is permitted.

12

While the Company is still in the process of
evaluating the impact of the new guidance on its consolidated financial statements and disclosures, the Company expects adoption
of the new guidance will have a material impact on its consolidated balance sheets due to recognition of the right-of-use asset
and lease liability related to its operating leases. While the new guidance is also expected to impact the measurement and presentation
of elements of expenses and cash flows related to leasing arrangements, the Company does not presently believe there will be a
material impact on its consolidated statements of operations or consolidated statements of cash flows. Recognition of a lease liability
related to operating leases will not impact any covenants related to the Company's long-term debt because the debt agreements specify
that covenant ratios be calculated using U.S. GAAP in effect at the time the debt agreements were entered into.

The Company reviewed other newly issued accounting
pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected
on the Company's financial statements upon future adoption.

Note 2: Acquisition

On April 6, 2018, the Company entered into
an Asset and Franchise Purchase Agreement under which (i) the Company repurchased from the seller one operating franchise in San
Diego, California and (ii) the parties agreed to terminate a second franchise agreement for an operating franchise. The Company
intends to operate the remaining franchise as a company-managed clinic. The total purchase price for the transaction was $100,000,
less $12,998 of deferred revenue resulting in total purchase consideration of $87,002.

The Company incurred approximately $3,250 of
transaction costs related to this acquisition, which are included in general and administrative expenses in the accompanying statements
of operations.

Purchase Price Allocation

The following summarizes the aggregate estimated
fair values of the assets acquired and liabilities assumed during 2018 as of the acquisition date:

Property and equipment

$

17,964

Intangible assets

129,000

Favorable leases

15,302

Total assets acquired

162,266

Bargain purchase gain

(75,264

)

Net purchase price

$

87,002

Intangible assets in the table above consist
of reacquired franchise rights of $85,000 amortized over an estimated useful life of four years and customer relationships of $44,000
amortized over an estimated useful life of two years.

Pro Forma Results of Operations (Unaudited)

The following table summarizes selected unaudited
pro forma condensed consolidated statements of operations data for the three and nine months ended September 30, 2018 and 2017
as if the acquisition in 2018 had been completed on January 1, 2017.

Pro Forma for the Three Months Ended

Pro Forma for the Nine Months Ended

September 30, 2018

September 30, 2017

September 30, 2018

September 30, 2017

Revenues, net

$

8,062,550

$

6,619,945

$

22,791,369

$

18,283,261

Net income (loss)

$

(211,974

)

$

(432,669

)

$

(689,141

)

$

(2,790,165

)

13

This selected unaudited pro forma consolidated
financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would
have been if the acquisition had been completed on that date. Moreover, this information is not indicative of what the Company’s
future operating results will be. The information for 2017 and 2018 prior to the acquisition is included based on prior accounting
records maintained by the acquired company. In some cases, accounting policies differed materially from accounting policies adopted
by the Company following the acquisition. For 2018, this information includes actual data recorded in the Company’s financial
statements for the period subsequent to the date of the acquisition. The Company’s condensed consolidated statement of operations
for the three months ended September 30, 2018 includes net revenue and net income of approximately $67,000 and $23,000, respectively,
attributable to the acquisition. The Company’s condensed consolidated statement of operations for the nine months ended September 30,
2018 includes net revenue and net income of approximately $129,000 and $40,000, respectively, attributable to the acquisition.

The pro forma amounts included in the table
above reflect the application of accounting policies and adjustment of the results of the clinics to reflect the additional depreciation
and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets
had been applied from January 1, 2017.

Note 3: Revenue Disclosures

Company-owned or Managed Clinics

The Company earns revenues from clinics that
it owns and operates or manages throughout the United States. In those states where the Company owns and operates the clinic,
revenues are recognized when services are performed. The Company offers a variety of membership and wellness packages which feature
discounted pricing as compared with its single-visit pricing. Amounts collected in advance for membership and wellness packages
are recorded as deferred revenue and recognized when the service is performed. In other states where state law requires
the chiropractic practice to be owned by a licensed chiropractor, the Company enters into a management agreement with the doctor’s
PC. Under the management agreement, the Company provides administrative and business management services to the doctor’s
PC in return for a monthly management fee. Due to certain implicit variable consideration in these management agreement contracts,
and based on past practices between the parties, the Company determined that it cannot meet the probable threshold if it includes
all of the variable consideration in the transaction price. Therefore, the Company recognizes revenue under these contracts only
when it has a high degree of confidence that revenue will not be reversed in a subsequent reporting period.

The Company currently franchises its concept
across 30 states. The franchise arrangement is documented in the form of a franchise agreement. The franchise arrangement requires
the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee,
but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property
subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality, and
substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature
of the Company’s promise in granting the franchise license is to provide the franchisee with access to the brand’s
symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with
the franchise license and as such are considered to represent a single performance obligation.

The transaction price in a standard franchise
arrangement primarily consists of (a) initial franchise fees; (b) continuing franchise fees (royalties); (c) advertising fees;
and (d) software fees. Since the Company considers the licensing of the franchising right to be a single performance obligation,
no allocation of the transaction price is required.

The Company recognizes the primary components
of the transaction price as follows:

•

Franchise fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the execution of the franchise agreement. As these fees are typically received in cash at or near the beginning of the franchise term, the cash received is initially recorded as a contract liability until recognized as revenue over time;

14

•

The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenue are recognized when the franchisee's sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, on the balance sheet.

•

The Company is entitled to a monthly software fee, which is charged monthly. The Company recognizes revenue related to software fees ratably on a straight-line basis over the term of the franchise agreement.

In determining the amount and timing of revenue
from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however,
the timing of recognition does not require significant judgment as it is based on either the franchise term or the reported sales
of the franchisee, none of which require estimation. The Company believes its franchising arrangements do not contain a significant
financing component.

Prior to the adoption of ASC 606, the Company
generally recognized the entire franchise fee as revenue at the clinic opening date. The impact on the Company's previously reported
financial statements of the change from that policy to the policy described above is presented in Note 1, Nature of Operations
and Summary of Significant Accounting Policies.

Under ASC 606, the Company will record advertising
fees received under franchise agreements as advertising fund revenue. Under previously issued accounting guidance for franchisors,
advertising revenue and expense were recognized in the same amount in each period. That guidance was superseded by ASC 606 such
that advertising expense may now be different than the advertising revenue recognized as described above. The impact of these changes
with respect to advertising fees and advertising expenses on the Company's previously reported financial statements was not material.

Regional Developer Fees

The Company currently utilizes eighteen regional
developers to assist in the development of the brand across certain geographic territories. The arrangement is documented in the
form of a regional developer agreement. The arrangement between the Company and the regional developer requires the Company to
perform various activities to support the brand that do not directly transfer goods and services to the regional developer, but
instead represent a single performance obligation, which is the transfer of the development rights to the defined geographic region.
The intellectual property subject to the development rights is symbolic intellectual property as it does not have significant standalone
functionality, and substantially all of the utility is derived from its association with the Company’s past or ongoing activities.
The nature of the Company’s promise in granting the development rights is to provide the regional developer with access to
the brand’s symbolic intellectual property over the term of the agreement. The services provided by the Company are highly
interrelated with the development of the territory and the resulting franchise licenses sold by the regional developer and as such
are considered to represent a single performance obligation.

The transaction price in a standard regional
developer arrangement primarily consists of the initial territory fees. The Company recognizes the regional developer fee as revenue
ratably on a straight-line basis over the term of the regional developer agreement commencing with the execution of the regional
developer agreement. As these fees are typically received in cash at or near the beginning of the term of the regional developer
agreement, the cash received is initially recorded as a contract liability until recognized as revenue over time.

Disaggregation of Revenue

The Company believes that the captions contained
on the condensed consolidated statements of operations appropriately reflect the disaggregation of its revenue by major type for
the three and nine months ended September 30, 2018 and 2017.

15

Rollforward of Contract Liabilities and Contract Assets

Changes in the Company's contract liability
for deferred franchise and regional development fees during the nine months ended September 30, 2018 were as follows (in thousands):

Deferred Revenue

short and long-term

Balance at December 31, 2017

$

11,547

Recognized as revenue during the nine months ended September 30, 2018

(1,665

)

Fees received and deferred during the nine months ended September 30, 2018

2,431

Balance at September 30, 2018

$

12,313

Changes in the Company's contract assets for
deferred franchise costs during the nine months ended September 30, 2018 are as follows (in thousands):

Deferred Franchise Costs

short and long-term

Balance at December 31, 2017

$

2,811

Recognized as cost of revenue during the nine months ended September 30, 2018

(468

)

Costs incurred and deferred during the nine months ended September 30, 2018

899

Balance at September 30, 2018

$

3,242

The following table illustrates estimated revenues
expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as
of September 30, 2018 (in thousands):

Contract liabilities expected to be recognized in

Amount

2018 (remainder)

$

546

2019

2,165

2020

2,167

2021

2,042

2022

1,603

Thereafter

3,790

Total

$

12,313

Note 4. Restricted Cash

The table below reconciles the cash and cash
equivalents balance and restricted cash balances from The Company’s condensed consolidated balance sheet to the amount of
cash reported on the condensed consolidated statement of cash flows:

September 30,

September 30,

2018

2017

Cash and cash equivalents

$

5,611,008

$

2,628,648

Restricted cash

185,396

157,470

Total cash, cash equivalents and restricted cash

$

5,796,404

$

2,786,118

Note 5: Notes Receivable

Effective April 29, 2017, the Company entered
into a regional developer agreement for certain territories in the state of Florida in exchange for $320,000, of which $187,000
was funded through a promissory note. The note bears interest at 10% per annum for 42 months and requires monthly principal and
interest payments over 36 months, beginning November 1, 2017 and maturing on October 1, 2020. The note is collateralized by
the regional developer rights in the territory.

Effective August 31, 2017, the Company entered
into a regional developer agreement for certain territories in Maryland/Washington DC in exchange for $220,000, of which $117,475
was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal and
interest payments over 36 months, beginning September 1, 2017 and maturing on August 1, 2020. The note is collateralized by the
regional developer rights in the territory.

16

Effective September 22, 2017, the Company entered
into a regional developer and asset purchase agreement for certain territories in Minnesota in exchange for $228,293, of which
$119,147 was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal
and interest payments over 36 months, beginning October 1, 2017 and maturing on September 1, 2020. The note is collateralized by
the regional developer rights in the territory. The note was paid in full on September 28, 2018.

Effective October 10, 2017, the Company entered
into a regional developer agreement for certain territories in Texas, Oklahoma and Arkansas in exchange for $170,000, of which
$135,688 was funded through a promissory note. The note bears interest at 10% per annum for 36 months and requires monthly principal
and interest payments over 36 months, beginning September 24, 2017 and maturing on October 24, 2020. The note is collateralized
by the regional developer rights in the territory.

The net outstanding balances of the notes as
of September 30, 2018 and December 31, 2017 were $313,143 and $523,785, respectively. Maturities of notes receivable as of September
30, 2018 are as follows:

2018 (remaining)

$

35,071

2019

149,349

2020

128,723

Total

$

313,143

Note 6: Property and Equipment

Property and equipment consist of the following:

September 30,

December 31,

2018

2017

Office and computer equipment

$

1,214,801

$

1,137,970

Leasehold improvements

5,361,821

5,117,379

Software developed

1,145,742

1,066,454

7,722,364

7,321,803

Accumulated depreciation

(4,665,685

)

(3,928,349

)

3,056,679

3,393,454

Construction in progress

213,060

407,012

$

3,269,739

$

3,800,466

Depreciation expense was $258,007 and $806,625
for the three and nine months ended September 30, 2018, respectively. Depreciation expense was $340,238 and $1,099,698 for the
three and nine months ended September 30, 2017, respectively.

In August 2018, the Board of Directors approved
a change in strategy as it relates to the development of the Company’s IT platform. The Company will move away from internal
development and utilize a third party software-as-a-service CRM platform as the basis for its IT infrastructure. Based on this
decision, the Company recorded an impairment of approximately $343,000 of previously capitalized software development costs during
the three months ended September 30, 2018.

17

Note 7: Fair Value Consideration

The Company’s financial instruments include
cash, restricted cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable. The carrying
amounts of its financial instruments approximate their fair value due to their short maturities.

The Company does not use derivative financial
instruments to hedge exposures to cash-flow, market or foreign-currency risks.

Authoritative guidance defines fair value as
the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between
market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that
maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed
based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s
assumptions of what market participants would use in pricing the asset or liability developed based on the best information available
in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows:

Level 1:

Observable inputs such as quoted prices in active markets;

Level 2:

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of September 30, 2018, and December 31,
2017, the Company did not have any financial instruments that were measured on a recurring basis as Level 1, 2 or 3.

The intangible assets resulting from the acquisition
(reference Note 2) were recorded at fair value on a non-recurring basis and are considered Level 3 within the fair value hierarchy.

Note 8: Intangible Assets

On July 26, 2018, the Company entered into
an agreement under which it repurchased the regional development rights to develop franchises in Las Vegas, Nevada. The total consideration
for the transaction was $278,250, paid in cash.The Company carried a deferred
revenue balance associated with these transactions of $26,934, representing license fees collected upon the execution of the regional
developer agreements. The Company accounted for the termination of development rights associated with unsold or undeveloped
franchises as a cancellation, and the associated deferred revenue was netted against the aggregate purchase price.

18

Intangible assets consist of the following:

As of September 30, 2018

Gross Carrying

Accumulated

Net Carrying

Amount

Amortization

Value

Amortized intangible assets:

Reacquired franchise rights

$

1,758,000

$

854,011

$

903,989

Customer relationships

745,000

711,999

33,001

Reacquired development rights

1,413,316

584,984

828,332

$

3,916,316

$

2,150,994

$

1,765,322

As of December 31, 2017

Gross Carrying

Accumulated

Net Carrying

Amount

Amortization

Value

Amortized intangible assets:

Reacquired franchise rights

$

1,673,000

$

657,943

$

1,015,057

Customer relationships

701,000

674,667

26,333

Reacquired development rights

1,162,000

443,348

718,652

$

3,536,000

$

1,775,958

$

1,760,042

Amortization expense was $131,262 and $375,036
for the three and nine months ended September 30, 2018, respectively. Amortization expense was $128,562 and $450,315 for the three
and nine months ended September 30, 2017, respectively.

Estimated amortization expense for 2018 and subsequent years is
as follows:

2018 (remainder)

$

131,262

2019

525,048

2020

508,551

2021

437,830

2022

150,418

Thereafter

12,213

Total

$

1,765,322

Note 9: Debt

Notes Payable

During 2015, the Company issued 12 notes payable,
which matured through February 2017, totaling $800,350 as a portion of the consideration paid in connection with the Company’s
various acquisitions. Interest rates ranged from 1.5% to 5.25%.

During 2016, the Company issued two notes payable
totaling $186,000 as a portion of the consideration paid in connection with the Company’s various acquisitions. Interest
rates for both notes are 4.25% with maturities through May of 2017. There is one outstanding note which will be paid upon execution
of a final settlement and release agreement between the parties.

Maturities of notes payable are as follows
as of September 30, 2018:

2018 (remainder)

$

100,000

Total

$

100,000

19

Credit and Security Agreement

On January 3, 2017, the Company entered into
a Credit and Security Agreement (the “Credit Agreement”) and signed a revolving credit note payable to the lender.
Under the Credit Agreement, the Company is able to borrow up to an aggregate of $5,000,000 under revolving loans. Interest on the
unpaid outstanding principal amount of any revolving loans is at a rate equal to 10% per annum, provided that the minimum amount
of interest paid in the aggregate on all revolving loans granted over the term of the Credit Agreement is $200,000. Interest is
due and payable on the last day of each fiscal quarter in an amount determined by the Company, but not less than $25,000. The Credit
Agreement terminates in December 2019, unless sooner terminated in accordance with the provisions of the Credit Agreement. The
Credit Agreement is collateralized by the assets in the Company’s company-owned or managed clinics. The Company is using
the credit facility for general working capital needs. As of September 30, 2018, the Company had drawn $1,000,000 of the $5,000,000
available under the Credit Agreement.

Note 10: Equity

Stock Options

In the nine months ended September 30, 2018,
the Company granted 110,792 stock options to employees with exercise prices ranging from $4.92 - $8.25.

Upon the completion of the Company’s
IPO in November 2014, its stock trading price became the basis of fair value of its common stock used in determining the value
of share-based awards. To the extent the value of the Company’s share-based awards involves a measure of volatility, it will
rely upon the volatilities from publicly traded companies with similar business models until its common stock has accumulated enough
trading history for it to utilize its own historical volatility. The expected life of the options granted is based on the average
of the vesting term and the contractual term of the option. The risk-free rate for periods within the expected life of the option
is based on the U.S. Treasury 10-year yield curve in effect at the date of the grant.

The Company has computed the fair value of
all options granted during the nine months ended September 30, 2018 and 2017, using the following assumptions:

Nine Months Ended September 30,

2018

2017

Expected volatility

35%

42%

Expected dividends

None

None

Expected term (years)

7

5.5

-

7

Risk-free rate

2.53%

to

2.90%

1.98%

to

2.14%

Forfeiture rate

20%

20%

20

The information below summarizes the stock options activity:

Weighted

Weighted

Weighted

Average

Average

Average

Number of

Exercise

Fair

Remaining

Shares

Price

Value

Contractual Life

Outstanding at December 31, 2016

953,075

$

3.66

$

1.86

6.9

Granted at market price

295,286

4.31

Exercised

(206,875

)

1.76

Cancelled

(37,570

)

5.11

Outstanding at December 31, 2017

1,003,916

$

4.18

$

1.87

8.1

Granted at market price

110,792

6.97

Exercised

(86,640

)

3.44

Cancelled

(67,855

)

3.37

Outstanding at Sepember 30, 2018

960,213

$

4.63

$

2.05

7.0

Exercisable at September 30, 2018

476,189

$

4.74

$

2.08

7.0

The intrinsic value of the Company’s
stock options outstanding was $ 3,815,537 at September 30, 2018.

For the three and nine months ended September
30, 2018, stock-based compensation expense for stock options was $62,951 and $271,764, respectively. For the three and nine
months ended September 30, 2017, stock-based compensation expense for stock options was $125,588 and $261,471, respectively. Unrecognized
stock-based compensation expense for stock options as of September 30, 2018 was $792,031, which is expected to be recognized ratably
over the next 2.77 years.

Restricted Stock

The information below summaries the restricted
stock activity:

Restricted Stock Awards

Shares

Outstanding at December 31, 2017

63,700

Awards granted

50,134

Awards vested

(61,700

)

Awards forfeited

(1,000

)

Outstanding at September 30, 2018

51,134

For the three and nine months ended September
30, 2018, stock-based compensation expense for restricted stock was $59,825 and $197,641, respectively. For the three and nine
months ended September 30, 2017, stock-based compensation expense for restricted stock was $59,804 and $151,041, respectively.
Unrecognized stock-based compensation expense for restricted stock awards as of September 30, 2018 was $316,807, which is expected
to be recognized ratably over the next 2.06 years.

Note 11: Income Taxes

During the three and nine months ended September
30, 2018, the Company recorded income tax benefits of approximately $50,000 and $108,000, respectively. The Company’s effective
tax rate differs from the federal statutory tax rate due to permanent differences, state taxes and changes in the valuation allowance.

During the three and nine months ended September
30, 2017, the Company recorded an income tax expense of approximately $36,000 and $79,000, respectively, with the difference between
the Company’s effective tax rate and the federal statutory tax rate due to state tax expense and a valuation allowance on
the Company's deferred tax assets and the impact of certain permanent differences on taxable income.

21

Note 12: Related Party Transactions

The Company entered into a legal agreement
with a certain common stockholder related to services performed for the operations and transaction related activities of the Company.
Amounts paid to or for the benefit of this stockholder was approximately $78,000 and $194,000 for the three and nine months ended
September 30, 2018, respectively. Amounts paid to or for the benefit of this stockholder was approximately $56,000 and $169,000
for the three and nine months ended September 30, 2017, respectively.

Note 13: Commitments and Contingencies

Operating Leases

The Company leases its corporate office space
and the space for each of the company-owned or managed clinics in the portfolio. Total rent expense for the three and nine months
ended September 30, 2018 was $725,867 and $2,117,624, respectively. Total rent expense for the three and nine months
ended September 30, 2017 was $688,031 and $2,114,118, respectively.

Future minimum annual lease payments are as follows:

2018 (remainder)

$

658,905

2019

2,450,981

2020

2,192,597

2021

2,081,455

2022

1,972,180

Thereafter

3,377,973

Total

$

12,734,091

The Company has recognized liabilities from costs associated with
the termination of certain operating leases. The Company has recorded the cumulative effect of a change resulting from a revision
to either the timing or the amount of estimated cash flows in the period as follows:

Lease exit liability at December 31, 2017

$

299,400

Additions or changes in estimates

250,704

Settlements

(153,220

)

Net accretion

(36,614

)

Lease exit liability at September 30, 2018

$

360,270

Note 14: Segment Reporting

An operating segment is defined as a component
of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision
Maker (“CODM”) to evaluate performance and make operating decisions. The Company has identified its CODM as the Chief
Executive Officer.

The Company has two operating business segments.
The Corporate Clinics segment is comprised of the operating activities of the company-owned or managed clinics. As of September
30, 2018, the Company operated or managed 48 clinics under this segment. The Franchise Operations segment is comprised of the operating
activities of the franchise business unit. As of September 30, 2018, the franchise system consisted of 374 clinics in operation.
Corporate is a non-operating segment that develops and implements strategic initiatives and supports the Company’s two operating
business segments by centralizing key administrative functions such as finance and treasury, information technology, insurance
and risk management, legal and human resources. Corporate also provides the necessary administrative functions to support the Company
as a publicly-traded company. A portion of the expenses incurred by Corporate are allocated to the operating segments.

22

The tables below present financial information
for the Company’s two operating business segments (in thousands). The prior period comparatives have been adjusted to reflect
the changes from ASC 606.

Three Months
Ended

Nine Months Ended

September
30,

September
30,

2018

2017

2018

2017

(as adjusted)

(as adjusted)

Revenues:

Corporate clinics

$

3,675

$

2,930

$

10,352

$

8,106

Franchise operations

4,387

3,608

12,365

9,939

Total revenues

$

8,062

$

6,538

$

22,717

$

18,045

Segment operating (loss) income:

Corporate clinics

$

440

$

(196

)

$

466

$

(1,651

)

Franchise operations

2,130

1,643

5,919

4,321

Total segment operating
(loss) income

$

2,570

$

1,447

$

6,385

$

2,670

Depreciation and amortization:

Corporate clinics

$

276

$

379

$

825

$

1,222

Franchise operations

-

-

-

-

Corporate administration

113

90

357

328

Total depreciation and
amortization

$

389

$

469

$

1,182

$

1,550

Reconciliation of total segment operating income
(loss) to consolidated earnings (loss) before income taxes (in thousands):

Total segment operating (loss) income

$

2,570

$

1,447

$

6,385

$

2,670

Unallocated corporate

(2,761

)

(1,853

)

(7,116

)

(5,776

)

Consolidated loss from operations

(191

)

(406

)

(731

)

(3,106

)

Bargain purchase gain

-

-

75

-

Other (expense) income, net

(11

)

10

(33

)

(34

)

Loss before income tax
expense

$

(202

)

$

(396

)

$

(689

)

$

(3,140

)

For the nine months ended September 30, 2017,
$418,000 of loss on disposition/impairment has been reclassified from unallocated corporate to the corporate clinic segment operating
loss to align with current year presentation.

Effective October 5, 2018, the Company entered
into a regional developer agreement for certain territories in the state of California in exchange for cash of $280,000.

Effective October 5, 2018, the Company entered
into a regional developer agreement for certain territories in the state of Florida in exchange for cash of $170,000.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of
our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial
statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and
notes thereto as of and for the year ended December 31, 2017 and the related Management’s Discussion and Analysis of
Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K.

Forward-Looking Statements

The information in this discussion contains
forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, (“the Exchange Act”), which are subject to the “safe
harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning
our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives
of management; and accounting estimates and the impact of new or recently issued accounting pronouncements. The words “anticipates,”
“believes,” “estimates,” “expects,” “intends,” “may,” “plans,”
“projects,” “will,” “should,” “could,” “predicts,” “potential,”
“continue,” “would” and similar expressions are intended to identify forward-looking statements, although
not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results
or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that
we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation
to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations,
forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to
differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically
consider various factors, uncertainties and risks that could affect our future results or operations as described from time to
time in our SEC reports, including those risks outlined under “Risk Factors” which are contained in Item 1A of our
Form 10-K for the year ended December 31, 2017. These factors, uncertainties and risks may cause our actual results to differ materially
from any forward-looking statement set forth in this Form 10-Q. You should carefully consider these risks and uncertainties and
other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect
to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in
their entirety by this cautionary statement. Some of the important factors contained in Item 1A of our Form 10-K for the year ended
December 31, 2017 that could cause our actual results to differ materially from those projected in any forward-looking statements
include, but are not limited to, the following:

•

we may not be able to successfully implement our growth strategy if we or our franchisees are unable to locate and secure appropriate sites for clinic locations, obtain favorable lease terms, and attract patients to our clinics;

24

•

we have limited experience operating company-owned or managed clinics, and we may not be able to duplicate the success of some of our franchisees;

•

we may not be able to acquire operating clinics from existing franchisees or develop company-owned or managed clinics on attractive terms;

•

any acquisitions that we make could disrupt our business and harm our financial condition;

•

we may not be able to continue to sell franchises to qualified franchisees;

•

we may not be able to identify, recruit and train enough qualified chiropractors to staff our clinics;

•

new clinics may not be profitable, and we may not be able to maintain or improve revenues and franchise fees from existing franchised clinics;

•

the chiropractic industry is highly competitive, with many well-established competitors;

•

recent administrative actions and rulings regarding the corporate practice of medicine and joint employer responsibility may jeopardize our business model;

•

we may face negative publicity or damage to our reputation, which could arise from concerns expressed by opponents of chiropractic and by chiropractors operating under traditional service models;

•

legislation and regulations, as well as new medical procedures and techniques, could reduce or eliminate our competitive advantages; and

•

we face increased costs as a result of being a public company.

Additionally, there may be other risks that
are otherwise described from time to time in the reports that we file with the Securities and Exchange Commission. Any forward-looking
statements in this report should be considered in light of various important factors, including the risks and uncertainties listed
above, as well as others.

Overview

Our principal business is to develop, own,
operate, support and manage chiropractic clinics through franchising and the sale of regional developer rights and through direct
ownership and management arrangements throughout the United States.

We strive to be the leading provider of chiropractic
care in the markets we serve and to increase brand recognition in our industry through the expansion of chiropractic clinics in
key markets throughout North America and abroad.

Key Performance Measures. We
receive both weekly and monthly performance reports from our clinics which include key performance indicators including gross clinic
sales, total royalty income, and patient office visits. We believe these indicators provide us with useful data with which to measure
our performance and to measure our franchisees’ and clinics’ performance.

Key Clinic Development Trends. As
of September 30, 2018, we and our franchisees operated 422 clinics. Of the 48 company-owned or managed clinics, 16 were constructed
and developed by us, and 32 were acquired from franchisees.

Our current strategy is to grow through the
sale and development of additional franchises and to foster the growth of acquired and developed clinics that we own and manage.
In addition, we believe that we can accelerate the development of, and revenue generation from, company-owned or managed clinics
through the further selective acquisition of existing franchised clinics. We will seek to acquire existing franchised clinics that
meet our criteria for demographics, site attractiveness, proximity to other clinics and additional suitability factors. Finally,
we have executed one lease for a future greenfield clinic location, and have additional letters-of-intent in place for further
greenfield expansion in the coming months.

25

We believe that The Joint has a sound concept,
benefiting from the fundamental changes taking place in the manner in which Americans access chiropractic care and their growing
interest in seeking effective, affordable natural solutions for general wellness. These trends join with the strong preference
we have seen among chiropractic doctors to reject the insurance-based model to produce a combination that benefits the consumer
and the service provider alike. We believe that these forces create an important opportunity to accelerate the growth of our network.

Significant Events and/or Recent Developments

We continue to deliver on our strategic initiatives
and to progress toward sustained profitability. In 2018 to date, we have continued to follow or have implemented these three key
strategies with the goal of accelerating growth: (1) continued acceleration of franchise sales; (2) continued execution of our
regional developer strategy; and (3) expansion of our corporate clinics portfolio within clustered locations. Following these strategic
initiatives, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017, we saw gross
system-wide sales grow by 31%, system-wide comp sales – or “same store” retail sales of clinics that have been
open for at least 13 full months – increase by 26%, and our revenue grow by 26%. These factors drove improvement in our bottom
line, and we continue to drive toward sustainable profitability with our net loss decreasing by $2.6 million to $0.6 million for
the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. Further, cash and cash equivalents
increased to $5.6 million at September 30, 2018 compared to $4.2 million at December 31, 2017.

Factors Affecting Our Performance

Our operating results may fluctuate significantly
as a result of a variety of factors, including the timing of new clinic openings, markets in which they are contained and related
expenses, general economic conditions, consumer confidence in the economy, consumer preferences, and competitive factors.

In May 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,”
which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods
or services to customers. The standard also calls for additional disclosures around the nature, amount, timing and uncertainty
of revenue and cash flows arising from contracts with customers. The ASU replaced most existing revenue recognition guidance in
U.S. GAAP. We adopted the new standard effective January 1, 2018.

Significant Accounting Polices and Estimates

There were no changes in our significant accounting
policies and estimates during the nine months ended September 30, 2018 from those set forth in “Significant Accounting Policies
and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017, except as outlined in Note 1, Nature
of Operations and Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in
this report as it relates to revenue recognition under ASC 606.

Results of Operations

The following discussion and analysis of our
financial results encompasses our consolidated results and results of our two business segments: Corporate Clinics and Franchise
Operations.

26

Total Revenues – Three Months Ended September 30, 2018

Components of revenues for the three months
ended September 30, 2018 as compared to the three months ended September 30, 2017, were as follows:

Three Months Ended

September 30,

2018

2017

Change from Prior Year

Percent Change from Prior Year

Revenues:

Revenues and management fees from company clinics

$

3,674,704

$

2,929,850

$

744,854

25.4

%

Royalty fees

2,588,666

1,958,249

630,417

32.2

%

Franchise fees

457,516

381,777

75,739

19.8

%

Advertising fund revenue

736,987

775,221

(38,234

)

(4.9

)%

IT related income and software fees

324,250

290,250

34,000

11.7

%

Regional developer fees

142,651

99,215

43,436

43.8

%

Other revenues

137,776

103,336

34,440

33.3

%

Total revenues

$

8,062,550

$

6,537,898

$

1,524,652

23.3

%

The reasons for the significant changes in our components of total
revenues were as follows:

Consolidated Results

•

Total revenues increased by $1.5 million, primarily due to the continued revenue growth of our company-owned or managed clinics portfolio and continued expansion and revenue growth of our franchise base.

Royalty fees increased due to an increase in the number of franchised clinics in operation during the current period along with continued sales growth in existing franchised clinics. As of September 30, 2018, and 2017, there were 374 and 342 franchised clinics in operation, respectively.

•

Franchise fees increased due to an increase in franchise agreements executed.

•

Regional developer fees increased due to the sale of additional regional developer territories and the related revenue recognition over the life of the regional developer agreement.

•

Software fees revenue increased due to an increase in our franchise clinic base as described above.

27

Total Revenues – Nine Months Ended September 30, 2018

Components of revenues for the nine months
ended September 30, 2018 as compared to the nine months ended September 30, 2017 were as follows:

Nine Months Ended

September 30,

2018

2017

Change from Prior Year

Percent Change from Prior Year

Revenues:

Revenues and management fees from company clinics

$

10,352,013

$

8,106,121

$

2,245,892

27.7

%

Royalty fees

7,283,839

5,518,409

1,765,430

32.0

%

Franchise fees

1,254,997

1,041,151

213,846

20.5

%

Advertising fund revenue

2,083,769

1,995,235

88,534

4.4

%

Software fees

947,635

839,788

107,847

12.8

%

Regional developer fees

415,075

262,102

152,973

58.4

%

Other revenues

379,970

282,289

97,681

34.6

%

Total revenues

$

22,717,298

$

18,045,095

$

4,672,203

25.9

%

The reasons for the significant changes in our components of total
revenues were as follows:

Consolidated Results

•

Total revenues increased by $4.7 million, primarily due to the continued revenue growth of our company-owned or managed clinics portfolio and continued expansion and revenue growth of our franchise base.

Royalty fees increased due to an increase in the number of franchised clinics in operation during the current period along with continued sales growth in existing franchised clinics. As of September 30, 2018, and 2017, there were 374 and 342 franchised clinics in operation, respectively.

•

Franchise fees increased due to an increase in franchise agreements executed.

•

Regional developer fees increased due to the sale of additional regional developer territories and the
related revenue recognition over the life of the regional developer agreement.

•

Software fees and advertising fund revenue increased due to an increase in our franchise clinic base as described above.

Cost of Revenues

Cost of Revenues

2018

2017

Change from Prior Year

Percent Change from Prior Year

Three Months Ended September 30,

$

1,084,707

$

839,144

$

245,563

29.3

%

Nine Months Ended September 30,

3,108,623

2,299,297

809,326

35.2

%

For the three months ended September 30, 2018,
as compared with the three months ended September 30, 2017, the total cost of revenues increased due to an increase in regional
developer royalties of $0.2 million triggered by an increase in franchise royalty revenues of approximately 32%.

For the nine months ended September 30, 2018,
as compared with the nine months ended September 30, 2017, the total cost of revenues increased due to an increase in regional
developer royalties of $0.7 million triggered by an increase in franchise royalty revenues of approximately 32%, and an increase
of $0.1 million in regional developer commissions.

28

Selling and Marketing Expenses

Selling and Marketing Expenses

2018

2017

Change from Prior Year

Percent Change from Prior Year

Three Months Ended September 30,

$

1,194,595

$

1,172,559

$

22,036

1.9

%

Nine Months Ended September 30,

3,590,562

3,189,489

401,073

12.6

%

Selling and marketing expenses increased for
the three and nine months ended September 30, 2018, as compared to the three and nine months ended September 30, 2017, driven by
an increase in local marketing expenditures by the company-owned or managed clinics.

Depreciation and Amortization Expenses

Depreciation and Amortization Expenses

2018

2017

Change from Prior Year

Percent Change from Prior Year

Three Months Ended September 30,

$

389,269

$

468,800

$

(79,531

)

(17.0

)%

Nine Months Ended September 30,

1,181,661

1,550,013

(368,352

)

(23.8

)%

Depreciation and amortization expenses decreased
for the three months ended September 30, 2018, as compared to the three months ended September 30, 2017, primarily due to assets
reaching the end of their estimated depreciable lives during the period.

Depreciation and amortization expenses decreased
for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, primarily due to the sale
or closure of 14 company-owned or managed clinics.

General and Administrative Expenses

General and Administrative Expenses

2018

2017

Change from Prior Year

Percent Change from Prior Year

Three Months Ended September 30,

$

5,242,026

$

4,462,922

$

779,104

17.5

%

Nine Months Ended September 30,

14,973,261

13,694,691

1,278,570

9.3

%

General and administrative expenses increased
during the three months ended September 30, 2018 compared to the three months ended September 30, 2017, primarily due to an increase
in payroll and related expense due to headcount increases and accrued bonus of $0.6 million and an increase in professional services
expense of $0.1 million.

General and administrative expenses increased
during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, primarily due to an increase
of approximately $1.1 million in payroll related expenses due to wage merit increases and accrued bonus for the 2018 period and
an increase in professional services of $0.1 million.

Loss from Operations - Three Months Ended September 30, 2018

Loss from Operations

2018

2017

Change from Prior Year

Percent Change from Prior Year

Three Months Ended September 30,

$

(191,302

)

$

(405,527

)

$

214,225

(52.8

)%

29

Consolidated Results

Consolidated loss from operations decreased
by $0.2 million for the period ended September 30, 2018 compared to the period ended September 30, 2017, primarily driven by the
$0.6 million improvement in operating loss in the corporate clinics discussed below and an improvement in income from operations
of $0.5 million in franchised operations discussed below, offset by an increase in unallocated corporate overhead of $0.9 million
driven by a $0.3 million loss from disposition or impairment due to the write-off of previously capitalized software development
costs and a $0.6 million increase in general and administrative expenses.

Corporate Clinics

Our corporate clinics segment (i.e., company-owned
or managed clinics) had net income from operations of $0.4 million for the period ended September 30, 2018, an improvement of $0.6
million compared to a loss from operations of $0.2 million for the same period last year. This improvement was primarily due to:

•

An increase in revenues of approximately $0.7 million from company-owned or managed clinics; partially offset by

•

A $0.1 million increase in general and administrative expenses in the three months ended September 30, 2018.

Franchise Operations

Our franchise operations segment had net income
from operations of $2.1 million for the three months ended September 30, 2018, an increase of $0.5 million, compared to net income
from operations of $1.6 million for the same period ended September 30, 2017. This increase was primarily due to:

•

An increase of approximately $0.7 million in total revenues (net of advertising fund contributions), due primarily to an approximately 32% increase in franchise royalty revenues; offset by

•

An increase of approximately $0.2 million in regional developer royalties.

Loss from Operations - Nine Months Ended September 30, 2018

Loss from Operations

2018

2017

Change from Prior Year

Percent Change from Prior Year

Nine Months Ended September 30,

$

(730,769

)

$

(3,106,366

)

$

2,375,597

(76.5

)%

Consolidated Results

Consolidated loss from operations decreased
by $2.4 million for the period ended September 30, 2018 compared to the period ended September 30, 2017, primarily driven by the
$2.1 million improvement in operating income (loss) in the corporate clinic segment discussed below and an increase in net income
from franchised operations of $1.6 million discussed below, offset by an increase in unallocated corporate overhead of $1.3 million.

Corporate Clinics

Our corporate clinics segment (i.e., company-owned
or managed clinics) had income from operations of approximately $0.5 million for the period ended September 30, 2018, an improvement
of $2.1 million, compared to a loss from operations of $1.6 million for the same period last year. This improvement was primarily
due to:

•

An increase in revenues of approximately $2.2 million from company-owned or managed clinics; and

30

•

A decrease of approximately $0.2 million of loss from disposition or impairment due to lease exits in the nine months ended September 30, 2017, which was $0.4 million as compared to $0.2 million for the nine months ended September 30, 2018. The decrease was offset by an increase of approximately $0.3 million increase in payroll related expenses due to merit increases and bonus accruals.

Franchise Operations

Our franchise operations segment had net income
from operations of $5.9 million for the nine months ended September 30, 2018, an increase of $1.6 million, compared to net income
from operations of $4.3 million for the same period ended September 30, 2017. This increase was primarily due to:

•

An increase of approximately $2.3 million in total revenues (net of advertising fund contributions), due primarily to an approximately 32% increase in franchise royalty revenues; offset by

•

An increase of $0.7 million in regional developer royalties.

Liquidity and Capital Resources

Sources of Liquidity

As of September 30, 2018, we had cash and short-term
bank deposits of approximately $5.6 million. We provided approximately $1.9 million of cash flow from operating activities in the
nine months ended September 30, 2018. We will continue to preserve cash, and while we have resumed the acquisition and development
of company-owned or managed clinics, we intend to progress at a measured pace and target geographic clusters where we are able
to increase efficiencies through a consolidated real estate penetration strategy, leverage cooperative advertisement and marketing
and attain general corporate and administrative operating efficiencies.

In January 2017, we executed a Credit and Security
Agreement which provided a credit facility up to $5.0 million. We have drawn $1.0 million under the credit facility. See Note 9
to our condensed consolidated financial statements included in this report for additional discussion of the credit facility.

Analysis of Cash Flows

Net cash provided by (used in) operating activities
increased by $3,481,834 to $1,888,413for the nine months ended September 30, 2018 compared to ($1,593,421) for the nine months
ended September 30, 2017. The change was attributable primarily to decreased expenses and decreased working capital requirements
of our company-owned or managed clinics.

Net cash used in investing activities was $698,700
and $150,701 for the nine months ended September 30, 2018 and 2017, respectively. For the nine months ended September
30, 2018, this included an acquisition of $100,000, purchases of property and equipment of $531,162, reacquisition and termination
of regional developer rights of $278,250 offset by payments received on notes receivable of $210,642. For the nine months
ended September 30, 2017, this primarily included purchases of property and equipment of $190,589.

Net cash provided by financing activities was
$286,721 and $1,185,982 for the nine months ended September 30, 2018 and 2017, respectively. For the nine months ended September
30, 2018, this primarily included proceeds from exercise of stock options of $291,532. For the nine months ended September 30,
2017, this included borrowings of $1,000,000 on our revolving line of credit, proceeds from the sale of treasury stock of $292,671,
proceeds from the exercise of stock options of $127,466, offset by repayments on notes payable of $231,500.

Recent Accounting Pronouncements

See Note 1, Nature of Operations and Summary
of Significant Accounting Policies, to our condensed consolidated financial statements included in this report for information
regarding recently issued accounting pronouncements that may impact our financial statements.

31

Off-Balance Sheet Arrangements

During the nine months ended September 30,
2018, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance
or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated the effectiveness
of our disclosure controls and procedures as of September 30, 2018. The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act
are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act are accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. Our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives,
and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of September 30, 2018, our management concluded that,
as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the first quarter of 2018, we implemented
new controls in connection with our adoption of the Accounting Standards Updates related to Topic 606, Revenue from Contracts
with Customers. No other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) occurred during the nine months ended September 30, 2018 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, the Company
is party to litigation from time to time.

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not
required to provide the information required by this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Use of Proceeds from Registered Securities

None.

ITEM 6. EXHIBITS

The Exhibit Index immediately following the
Signatures to this Form 10-Q is hereby incorporated by reference into this Form 10-Q.

32

THE JOINT CORP.

SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.